Dive Brief:
- Apple supplier Foxconn Technology's fortunes fell alongside delays in the iPhone X supply chain, which led the contract manufacturer to post a 39% drop in net profits in Q3, according to The Wall Street Journal.
- The drop was the company's largest since the global recession hit in 2008. Bloomberg reports component delays caused Foxconn's operating costs to rise 16% in Q3, bringing net margins under 2%. The company is Apple's exclusive assembler for the iPhone X.
- Foxconn was not the only supplier to be affected by Apple's production delays. Pegatron, the company responsible for assembling the iPhone 8, reported that its quarterly net profit fell 32.4% due to component shortages and labor issues.
Dive Insight:
Apple CEO Tim Cook is constantly hailed as a supply chain hero, but recent reports suggest the company's newest products may be falling a bit far from the tree.
In recent months, Apple has been struggling to get its suppliers in line. From an intellectual property dispute with Qualcomm to a shortage of OLED components for its smartphones, the company has been faced with delays for both the iPhone 8 and iPhone X. While the iPhone X is now available, such delays and production uncertainty can take a hit on suppliers' financials, as Foxconn and Pegatron show.
And it's a big hit, too, as operating costs rise and margins decrease. In an assembly-based supply chain, every small part and component must be available just-in-time to enter the production line. If a single component is not in stock, an entire production line can be shut down, yielding labor unproductive and delaying production schedules. Such side effects ripple out into other long-term costs — such as overtime labor or expedited freight — due to tightened production and fulfillment timelines. It is no surprise Apple's suppliers took such a heavy hit.
The questions, then, are: Who will end up paying for the supply chain mishaps; and what can Apple do to avoid similar situations?
